After several years of standstill, Deutsche Bank decided to shift more decisively towards more stable revenue sources and to strengthen those core business lines which are most important for its European and multi-national clients. The bank will focus its corporate finance business on industries and segments which either align with its core European client base or link to financing and underwriting products in which it enjoys a leadership position, scale back activities in US rates sales and trading, and undertake a review of its global equities business with the expectation of reducing its platform.

Part of the initiatives are a significant reduction in workforce (in particular as a consequence of the right-sizing of the corporate & investment bank), delayering of management structures across the organization, a rationalization of external spend and real estate footprint worldwide, and increasing efficiency of control systems.

As regards the investment banking, the new CEO Christian Sewing stated in this context: “We are on a good track both in the DWS asset management business and in our private & commercial bank, although we need to substantially improve profitability in both. Our corporate & investment bank is also doing well in some areas and held or gained market share in certain areas. However, we are not strong enough in other areas of this business. Therefore we have to act decisively and to adjust our strategy. There is not time to lose as the current returns for our shareholders are not acceptable.”

Deutsche Bank´s AGM will be held on May 24th, 2018.

26 April 2018

Linde AG: Squeeze out planned

In order to facilitate the planned business combination, Linde AG and Praxair, Inc. agreed to implement a merger of Linde AG into Linde Intermediate Holding AG as the surviving entity in the event of a successful completion of the business combination. This move would help to simplify the group structure. Its implementation includes a squeeze out of the remaining minority shareholders of Linde AG against cash compensation and would only become effective in the event of a successful completion of the business combination.

Linde Intermediate Holding AG is a wholly-owned indirect subsidiary of Linde plc. In the event of a successful completion of the business combination, Linde Intermediate Holding AG is expected to hold approximately 92% of the shares in Linde AG. To that end, Linde intermediate Holding AG will enter into negotiations with Linde AG regarding a merger agreement. An extraordinary shareholders´ meeting which would resolve the transfer of the shares of the remaining shareholders of Linde AG to Linde Intermediate Holding AG against adequate cash compensation would take place following the completion of the business combination.

Porsche Automobil Holding SE: Won´t get far this way….

In January Porsche moaned about a decision of the Regional Court of Stuttgart. The press release complained that the court deemed the executive board and supervisory board of Porsche to not have sufficiently fulfilled its obligations under Sec. 91 (2) AktG to set up a functioning monitoring system in fiscal 2015 “after the so called diesel issue came to light on 18 September 2015.” And of course the company added that it considers this allegation to be without merit.

In April the prosecutors searched offices of Porsche. The investigation targeted current and former managers over the diesel emission scandal, including suspicions of fraud and misleading advertising. According to the press, the investigation concerns a Porsche board member, another member of the upper management and a third person.

By the way, this time the company did not bother to make a press release, not to mention an ad hoc news…..

Steinhoff International Holdings NV: Sale of Holding in Poco is on the way

According to an article in the German newspaper Handelsblatt, Steinhoff and the owner of the XXL Lutz furniture chain, Andreas Seifert, found a solution for the quarrel over the furniture retailer Poco at a meeting at the Regional Court of Dortmund. The settlement includes a sale of the shares in Poco previously held by Steinhoff to Seifert. In return for the 50% holding, Steinhoff will receive EUR 266.25 million. The transaction is still pending, subject to approval by the family trust of the founder of Poco, Peter Pohlmann.

According to the article, Steinhoff previously valued 100% of Poco at EUR 650 million, i.e. 50% equals EUR 325 million. The article does not say, however, whether this amount would be the book value of the Poco shares sold.

25 April 2018

Fresenius SE & Co. KGaA: Merger agreement with Akorn terminated

On April 22nd Fresenius announced that it has decided to terminate the company´s merger decision with Akorn due to Akorn´s failure to fulfill several closing conditions. The announcement mentioned material breaches of FDA data integrity requirements relating to Akorn´s operations found during Fresenius´ independent investigation. According to the release, Fresenius offered to delay its decision in order to allow Akorn additional opportunity to complete its own investigation and present any information it wished Fresenius to consider, but Akorn has declined that offer.

Akorn reacted with a lawsuit against Fresenius at the Court of Chancery in Delaware, for the consummation of the merger agreement. Here, it argues that Fresenius was obliged to close the transaction because all closing conditions of the merger agreement, except for the FTC clearance, were met. However, Fresenius confirmed that it believes that Akorn failed to fulfill several conditions, and that it will take all necessary and appropriate measures to vigorously contest the claims.

Following a first indication of problems with the planned USd 4.3 bn transaction in February this year, investors had become increasingly concerned. Akorn´s shares droppd by more than 35 percent on the announcement.

Just a few weeks after it E.ON Verwaltungs SE announced its intention to make an offer for the shares of Innogy in mid-March, the company received a request by an interested acquirer to grant a due diligence regarding its business activities in the Czech Republic and to provide selected information on the respective business activities. Also, the company received expressions of interest for certain business activities in the divisions Renewables, Retail and Grid& Infrastructure.

E.On plans to offer a cash consideration of EUR 36.76 per Innogy share via a voluntary public takeover offer. In addition shareholders would receive dividends paid for the financial years 2017 and 2018, which are estimated to amount to EUR 3.24 per share.

At this stage, it is still open whether and on what terms offers for individual business activities will be submitted and if they could have an impact on the voluntary offer by E.ON.

GEA Group AG: CFO takes early retirement

GEA Group announced that its supervisory board and the CFO Dr. Helmut Schmale have mutually agreed that Dr. Schmale will step down from the executive board prior to the termination of his appointment, which is due to expire by the end of March 2021. Pending a decision on his succession, Dr. Schmale will continue to perform his present tasks and responsibilities.

A few weeks earlier, the company already announced that the CEO Jürg Oleas does not intend to extend the term of his office beyond December 31st, 2019, and suggested to leave the executive board at the AGM in April 2019 in order to allow for a swift change in leadership.

Recent earnings announcements and the share price movement since the beginning of this year did not meet investor´s expectations. The upcoming changes on the executive board level may pave the way for a more positive trend.

According to the homepage of DWS, the shareholding of Deutsche Bank AG amounts to 77.75%. This information is based on the information contained in a voting rights notification published at the time of the IPO.

Already four weeks later this information is no longer current. During this period, Credit Suisse acquired shares via stabilization measures, thus ending up with approximately 3.5 million shares, which are supposed to return to Deutsche Bank, raising its holding in DWS to approximately 79.5 percent, and reducing the already disappointing net proceeds from the IPO from 1.4 bn to EUR 1.33 bn. Still, the share price remained well below the issue price.

METRO AG: Transfer of Real-business in new entity planned

As a consequence of unsuccessful collective bargaining negotiations with the trade union Verdi about a collective bargaining solution, METRO decided to prepare alternative collective bargaining solutions.

Following two years of negotiations with Verdi without any result, METRO created the framework conditions for a new approach to collective agreements, according to the CEO Olaf Koch. The company has therefore started to prepare the prerequisites for a collective agreement outside of the current HDE structure (Association of German Retailers) and intends to utilize its membership in the employers association AHD for that purpose.

Basically, this means a realignment within the METRO Group, including the transfer of the operating business of Real (retail sales) into the Metro Services GmbH. Verdi criticized the move since the remuneration of employees is supposed to be lower in the new entity, and the move would make the business look more attractive in case of a sale at the expense of employees.

thyssenkrupp AG: Status of the negotiations with Tata

In September 2017 thyssenkrupp informed about the plan to form a joint venture of its European steel activities with Tata Steel Europe. At the time, the partners expected to finalize the negotiations regarding the details of the transaction and the due diligence at the beginning of 2018, when a signing was supposed to complete this process.

In the meantime, the reality of complicated business transactions took its toll. In April, the company made an announcement regarding the progress achieved so far. According to the release, the due diligence of both businesses is almost complete and viable solutions for key issues have been reached. However, Tata Steel is still working to finalize certain arrangements, which is why thysssenkrupp expects that the boards can decide on the joint venture within the first half of the year, rather than at the beginning.

29 March 2018

RHÖN-KLINIKUM: Supervisory board puts up a fuss

The supervisory board of RHÖN-KLINIKUM AG unanimously revoked the appointment of Dr. Dr. Martin Siebert as member of the Management Board of the company with immediate effect on March 28th, 2018, and unanimously appointed Dr. Gunther Weiß as additional member of the Management Board with effect as from 1 May 2018. After internal consultation, the chairman of the Management Board will submit a proposal for the future distribution of responsibilities within the Management Board to the Supervisory Board in a timely manner.

The ad hoc release did not provide further information regarding the background of the decision. Further clarification may be provided at the annual press conference of RHÖN-KLINIKUM on March 29th, 2018.

DWS GmbH & Co. KGaA: A not so perfect start on the stock exchange

According to press reports, Deutsche Bank expected to receive about 2.0 bn Euro in return for the sale of 25% of the equity of DWS GmbH & Co. KGaA. Instead, it got 1.4 bn and sold 22.25% at a price of 32.50 Euro per share. What is more, it did not take long until the share price fell below the issue price.

So what is wrong with DWS? Definitively not the operating business, which seems to be getting along fine. But there seems to be some confusion in the market regarding the legal structure. DWS is a KGaA, which is a hybrid construction combining the structure of a private limited partnership with elements of a joint stock corporation. Since it is a private partnership, the legal structure of KGaA-shares can be constructed flexible. Theoretically, it would even be possible to grant investors governance rights similar to the position of owners of shares in a joint stock corporation. But for practical matters, more often the KGaA structure is simply used to bypass important corporate governance rights of investors.

Unfortunately, marketing and research people tend to shorten messages. “Well, it may not be a share in a joint stock corporation, but it still is a share in something and you can trade it like a share, can´t you? So just call it a share and it is easy to sell.” Looks like clever marketing at first glance – just don´t tell compliance about it.

22 March 2018

Linde: Temporary suspension of the review period for the business combination with Praxair

Linde AG announced that the European Commission suspended the review period for the merger clearance regarding the business combination of Linde and Praxair with retroactive effect as of February 24, 2018, until information requested by the European Commission will be provided. Later, the European Commission announced that it will publish its decision on the merger clearance on August 9th, 2018.

According to Linde´s news release, the merger partners continue to work on completing the business combination as planned in the second half of 2018. The stakes are high. The combination with the smaller US-competitor would create a global market leader for this industry, and most market participants look forward to a successful completion of the transaction. However, the suspension of the review drew the attention towards a risk probably underestimated by many investors. The time left to complete the merger is limited. It needs to be completed soon, since the one-year-period to protect investors as prescribed by German law will end on October 24th.

Deutsche Börse: Questionable remuneration to its former CEO

According to the recently released annual report for the year 2017, the former CEO Karsten Kengeter received in return for his investment of 4.5m Euro in Deutsche Börse shares under the terms of the Co-Performance Investment Plan of Deutsche Börse AG 68,987 so-called co-performance shares in the company. Unfortunately, it looks like this investment caused the prosecutors to start an investigation as regards a suspected insider trading.

After all, the reputation loss Deutsche Börse suffered from this transaction is high. In addition, it is still unclear what the economical and other consequences for Deutsche Börse are. But at least the supervisory board will be monitoring “further developments of the investigation against Mr. Kengeter for alleged insider trading and will take any such developments into consideration (if necessary) for further decisions”. The report also informs that the company recognized a provision of approx. 7.5m Euro as a pro-rated entitlement for Mr. Kengeter in this regard.

Fresenius: Doubts over planned acquisition of Akorn

In a recent ad hoc-release, Fresenius SE provided guidance on its expectations for the year 2018 and its mid-term growth targets. The real surprise in this message turned out to be the information regarding an investigation into alleged breaches of FDA data integrity requirements at Akorn, Inc., relating to product development.

According to the release, the consummation of the (takeover-) transaction may be affected it the closing conditions under the merger agreement are not met. In a separate statement issued by Akorn on the same day, Akron added that the investigation has not found any facts that would result in an impact on Akorn´s operations and the company does not believe this investigation should affect the closing of the transaction with Fresenius. Nonetheless, the news sent the share price of Akron down by more then 30 percent.

Bilfinger: Aftermath of a management disaster

As a result of an investigation, the supervisory board of Bilfinger SE resolved to assert claims for damages against all of the former members of the executive board in office from 2006 through 2015 who joined the executive board prior to the year 2015. These former board members are accused of breaches of duty in the implementation of an orderly compliance management system. Also, it is assumed that some former executives also breached their duties in connection with M&A projects.

According to the current provisional calculation, the recoverable damage is expected to amount to a low three-digit million Euro amount. However, the precise amount of the damage claims and to what extent these can actually be asserted has not yet been determined.

The most prominent target of Bilfinger is Roland Koch, the former premier of Hesse, who acted as chairman of Bilfinger´s executive board from July 2011 through August 8, 2014. According to a report on Reuters, though, Koch said he is not aware of having done any wrong during his tenure and reacted with surprise to the decision by Bilfinger´s supervisory board.

Steinhoff International: Downgrade to SDAX level

It´s been a while since the negative news flow about Steinhoff International started. Recent bits and pieces included further irregularities with the financial reporting, ongoing changes on the management level, etc. Finally even BaFin became irritated and threatened to impose a fine.

And with its recent decisions on the indices composition, Deutsche Börse acted as well. In a press release, the company informed that Covestro will replace ProSiebenSat1 Media in the DAX index. In the same release, a side note mentioned that Steinhoff International will leave the MDAX index (downgrade to SDAX).

The (late) decision is a consequence of the rule set governing the indices composition. Unfortunately, these do not reflect the relevance of corporate governance issues in case of a corporate governance crisis . Perhaps its time to consider an amendment to the rules?

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